Does paying for my car insurance build credit?

Do car insurance payments build credit? Car insurance builds credit when you make your payments on time and with a credit card. In general, paying your car insurance won't build credit unless you are using a credit card, but unpaid car insurance will not affect your credit score either way.

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Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Sep 15, 2020

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Here's what you need to know...

  • Paying your loan installments in time, making credit card payments, and keeping up with other service invoices will help you build your FICO credit score
  • Auto insurance companies don’t use your credit score but they might use an insurance score when assessing your application
  • Some states don’t allow insurance companies to consider credit in any way when determining auto insurance premiums and assessing risk
  • When a credit-based insurance score is utilized during rating, it can have either a positive or negative effect on your premiums

There’s often a lot of confusion concerning the types of accounts that are reported on a consumer credit file. While it’s important to pay your bills on-time, some late payments have a much greater impact than others.

If your goal is to build your credit and boost your credit score, the key is to open the right type of accounts that will have a bearing on your credit rating.

When you own a car, you’re required by law to carry auto insurance. To keep your policy active, you must make your premiums payments on-time. Car insurance builds credits when you make payments on time with your credit car.

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How do you build credit?


If you want to be a financially stable adult, you need to have at least some credit. If you’re fresh out of high school or you’re just becoming independent, it’s important to put a focus on showing lenders, landlords, and employers that you’re credit-worthy.

You can live your life paying cash for everything, but it’s difficult to land a job, rent an apartment and finance a car when you don’t build your credit.

Basic FICO scores range between 300 and 850. In the big world of credit, the higher the score the better. With a low score at the bottom-end of the

With a low score at the bottom-end of the range, it’s difficult to get any type of credit, but scores of 600 and above are considered fair, good, or excellent.

Here are some steps you can take to boost your rating:

  • Get a secured credit card
  • Apply for a low limit retail credit card
  • Ask your family to co-sign a loan for you
  • Use your credit cards and pay them down each month to keep balances low

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What types of accounts are reported to your credit?

You’d think that the payments you make for electricity or for your rent would go into your credit file, but that’s not the case. The only types of accounts that are reported to your credit report regularly are credit accounts.

Here are the types of accounts that are directly reported to Experian, Equifax, and Transunion:

  • Installment loans (car loans, student loans, furniture loans)
  • Mortgage loans for residential and investment properties
  • Bank credit cards
  • Gas station credit
  • Retail credit lines
  • Unpaid loans and debt that has gone to collections

What types of accounts aren’t usually found on your credit?


There’s a huge misunderstanding as to what is and isn’t reported on credit.

Your auto insurance isn’t the only type of account that’s not reported to credit bureaus every month.

Amazingly enough, your regular rental bills, your gas bills, your electricity bills, your cell phone bills and other bills that don’t involve credit don’t benefit your credit file.

How Paying Your Auto Insurance Can Indirectly Benefit Your Credit

If you pay your auto insurance premiums with funds in your checking or savings account, it’s not going help your credit rating. You can, however, charge the premiums to your credit card and then pay the credit card balance each month.

Doing this helps you establish a good payment history with your credit card issuer.

Paying your bill in full with your charge card can improve your credit score as long as you’re responsible in making your payments.

It can also benefit you by making you eligible for a pay-in-full discount that most insurance carriers offer.

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What is the correlation between car insurance and credit?


Paying your insurance premiums might not raise your credit score, but there’s definitely a correlation between car insurance and credit.

Car insurance companies use a long list of different factors to calculate rates, and one of these factors is your credit history.

While you might not think your credit score matters, the insurance companies do.

How does credit help insurance companies assess risk?

When insurance companies are underwriting an application or a renewal, they’re looking to see how likely the driver is to file a claim.

When you have tickets and accidents, it’s easy to understand why the insurer might want to charge you more for coverage.

According to insurers, the data shows that people with high credit ratings are less likely to file insurance claims.

Not only do these consumers often self-insure, they statistically have fewer losses and less moving violations.

What type of credit information do auto insurance companies use?


Insurers don’t just use your FICO score, they use a credit-based insurance score that’s calculated by third-party agencies like LexisNexis.

Several different factors are used to come up with a score.

Some of the credit information that’s used will include:

  • Major negative items like bankruptcy and liens
  • Payment history
  • Length of your credit history
  • Inquiries for new credit
  • Number of credit accounts open
  • Credit mix

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Can all insurance companies use your credit to calculate rates?


Not all states permit auto or home insurers to use information from a credit file when determining rates. About 95 percent of insurers use credit-scoring systems in states where scoring can be used to calculate premiums.

Check to see if credit can be used in your state so that you can start building your rating.

Paying your auto insurance on-time is important because if you don’t, you could have a lapse of coverage that will ruin your reputation with carriers and increase your rates.

Your payments are not directly reported to credit agencies, but they are used to qualify you for loyalty discounts.

If you’re ready to shop around for a new plan, use a rate comparison tool.

Find out how much it costs to switch carriers and build your insurance history. Enter your zip code in our FREE tool below to compare car insurance rates now!

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